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House Agriculture Committee Mark Up July 27th, 2023

House Committee on Agriculture

Full Committee Markup

Wednesday, July 26, 2023

Topline

  • The committee marked up and reported H.R. 4763, Financial Innovation and Technology for the 21st Century Act. favorably to the House.

Legislation

Opening Statements

Chairman Glenn Thompson (R-Pa.)

In his opening statement, Thompson said that the legislation marks a significant milestone in the committee’s efforts to create a much-needed digital asset regulatory framework that protects consumers and investors while promoting American leadership in finance and technology. He continued saying that current federal laws and regulations provide few rules of the road for those who want to engage with these emerging technologies, leading to complicated enforcement actions by regulators and creating further confusion in the market. Thompson said that the legislation provides certainty on digital assets for market participants and fills regulatory gaps at the CFTC and the SEC. He also said it bolsters American innovation and brings needed customer protection to digital asset activities and intermediaries.

 

Ranking Member David Scott (D-Ga.)

In his opening statement, Scott said it is hard enough for Republicans to create a whole new regulatory regime, especially without the help of their Democratic colleagues. Scott then said he hoped the Republicans allow Committee Democrats to participate and pass some of their amendments, to make the bill better. Scott said that Congress needs to act in this space, but the bill as it is today without amendments is unacceptable. He then explained that the bill is inadequate for several reasons including inadequate consumer protection provisions within the bill, no additional CFTC or SEC funding to carry out the bill’s provisions, and it encourages vertical integration by allowing entities to register as an exchange and as a broker-dealer. Scott finished by saying there are additional holes in this legislation that would allow hedge funds and pension funds to invest in these markets without their dealers being registered.

 

Consideration of Legislation

H.R. 4763, the Financial Innovation and Technology for the 21st Century Act

Thompson offered an ANS which he said makes targeted changes only to sections of the bill within the jurisdiction of the Agriculture Committee. Thompson said those changes are reflective of member and stakeholder input and technical assistance from the CFTC. Thompson said the ANS is the culmination of countless meetings with both Republicans and Democrats, federal agencies, market participants, and industry stakeholders. He explained the bill saying it establishes a process to permit the secondary market trading of digital commodities if they were initially offered as a part of an investment contract. It would also impose robust customer protection on all entities required to be registered with the CFTC. Thompson said the bill creates a digital commodities exchange framework that is like the existing exchange frameworks in the Commodities Exchange Act for designated contract markets and swap execution facilities, building on the existing commodity market requirements imposed on futures commission merchants to protect customer assets. He concluded by saying the ANS provides $120 million over five years to the CFTC to carry out provisions of the bill.

Rep Dusty Johnson (R-S.D.) expressed support for the bill as it creates consumer protections for investors that did not exist prior. Rep. Yadira Caraveo (D-Co.) said too many digital assets are unregulated and said the bill has made significant progress to ensure consumers are protected. Rep. Molinaro (R-NY) had a similar sentiment, saying consumers needed more protection and that the SEC’s rules alone are not enough to accommodate digital assets.

Rep. Alma Adams (D-N.C.) felt the bill could have used more bipartisan cooperation in its writing, and that the current bill does not go far enough to protect consumers. Rep. Austin Scott (R-Ga.) said he supports the bill but is worried that the SEC will use the bill as an excuse to relitigate things that they have already litigated.

Rep. Jonathan Jackson (D-Il.) said that the bill is meant to create market certainty in the US, which will allow companies to create and pioneer digital asset technologies for future economics. He followed up by saying it is imperative that Congress strike the right balance between fostering innovation and protecting investors. Jackson said if the Committee wanted to be serious about preventing the next FTX, then making custodians and exchanges provide verifiable evidence that they hold the assets they claim to have in their custody is essential to building trust and credibility in the digital asset space.

Rep. Elissa Slotkin (D-Mi.) explained that many constituents have felt the negative impacts of cryptocurrencies. She then acknowledged the underlying blockchain technology is very interesting and has substantive use cases. Slotkin concluded by saying that the bill is not perfect, but the world is asking us to move the ball forward on this issue, and the bill does that at least.

Rep. Tracey Mann (R-Kansas) said that there need to be clear rules of the road for consumers and the market. This bill begins to complete that goal and fully funds the request that the CFTC chairman asked for with $120 million to implement this bill.

Rep. John Duarte (R-Ca.) Expressed skepticism on some parts of the bill, including the actual regulation of cryptocurrencies themselves. He went on to say that there are no fact sets to cryptocurrencies as they sit in the ether of the exchanges that trade them, and said he was a very possible no vote on the bill.

Jonathan Jackson proposed an amendment that would strike the provisional registration by striking Section 105 of the bill. Jackson said this would correctly put the registration requirements in place when the final rules for oversight, registration, data collection, and disclosures are issued jointly by the SEC and the CFTC, as required in the bill. Thompson opposed the amendment on the grounds that striking the notice of intent section would leave investors without extra protections until the rules are finalized which could take years. Johnson agreed with Thompson’s assessment, while Rep Greg Casar (D-Texas) supported the amendment. The amendment was not agreed to by voice vote.

Casar proposed an amendment that would strike the entire bill and replace it with a provision asking the SEC and the CFTC to come together for an advisory board, which would come up with recommendations for how to handle this. Casar expressed concern that racing to change laws could put Americans at risk. Jackon, Rep. Salud Carbajal (D-Ca.), and Rep Andreas Salina (D-Or.) all supported the amendment, emphasizing passing the right law instead of rushing to put something out there. Johnson, Mann, Molinaro, and Thompson opposed, saying the committee held multiple hearings and worked with experts to craft the law. The amendment was not agreed to by voice vote.

Adams put forward an amendment that would add a core principle for digital commodity exchanges: a principle calling for diversity on the board of directors of the exchange. Jackson expressed support, but Thompson said while he believes that corporate America should reflect all parts of America, mandated diversity requirements trouble him. The amendment was not agreed to by voice vote.

David Scott put forward an amendment to reauthorize the CFTC. Rep. Darren Soto (D-Fl.) called the amendment great and supported it alongside Caraveo. Austin Scott and Thompson opposed, saying that while it is important to reauthorize the CFTC, this mark up is not the right vehicle to do so. The amendment was not agreed to by voice vote.

Caraveo put forward an amendment to amend Section 105 to include a requirement that a person desiring to file a notice of intent to register shall be a member of a futures association. She said this registration will require that they comply with the rules of the futures association pertaining to customer disclosures and protection of customer assets and ensure that the notice period is not a time when the industry is allowed to operate without any oversight. Thompson, Rep. Jasmine Crockett (D-Texas), Austin Scott, and Johnson all supported the amendment. The amendment was agreed to by voice vote.

Rep. Angie Craig (D-Mn.) put forward an amendment to amend the customer disclosure requirements to make sure that they provide meaningful insights to investors, including trading volume and asset volatility. Thompson supported it. The amendment was agreed to by voice vote.

Rep Nikki Budzinski put forward an amendment that sought to provide a process for new exchanges to have their products approved as a part of their registration process, prior to being fully registered. Thompson asked Budzinski to withdraw her amendment and work with him and the CFTC to improve the bill, and Budzinski withdrew her amendment.

Salinas put forward an amendment that adds a section to the bill that requires the CFTC to gather information and submit a comprehensive report to Congress about crypto’s energy intensity. Thompson said this was an important issue. Salinas withdrew the bill.

Crockett put forward an amendment that would allow the CFTC to require specific digital assets they find an issue with to be delisted without having to come to a joint determination with the SEC. Thompson said he would address this issue with Crockett, and Crockett withdrew the amendment.

David Scott put forward an amendment to apply consumer protections to ECPs, closing a loophole in the bill. Thompson opposed, calling ECPs wealthy and sophisticated customers who have, historically, not been carved into the regulatory scheme of the CFTC. The amendment was not agreed to by voice vote.

 

For more information on this hearing, please click here.

For an archive of past SIFMA hearing coverage, please click here.